Debt Delinquency Among First-Time Homebuyers
- David Clingingsmith
- Justin Sydnor
- Daniel Hartley
The mortgage crisis in the U.S. has raised serious questions about individual decision-making about home purchases, especially for borrowers with poor credit histories. In this paper we study what happens to financially vulnerable consumers’ finances when they purchase their first home. We use data from the Federal Reserve Bank of New York Consumer Credit Panel/Equifax Data. We identify individuals with low credit scores that acquire a mortgage for the first time between 2001 and 2005 and look at the evolution of their credit balances and delinquencies as they transition into home ownership. We find that these low-credit-score first-time mortgage holders see sharp increases in delinquency rates on non-home debt immediately after obtaining their first mortgage. Our evidence suggests that many of these first-time homebuyers have fundamental difficulties fitting their home purchases within their household budgets and that these problems emerge very quickly. Perhaps somewhat surprisingly, we find that these delinquency patterns for low-credit buyers actually improved slightly as the housing boom progressed. It appears that more available mortgage and home-equity credit – perhaps by lowering down-payment requirements and allowing borrowing from home equity – improved first-time buyers’ abilities to handle their other consumer debt payments.